• Tough negotiations in the US debt dispute
• A default by the US government would have dire consequences
• Nouriel Roubini warns of an impending stock crash
US economist Nouriel Roubini was one of the first to predict the 2008 financial crisis, earning himself the nickname “Dr. Doom.” And also in connection with the current debt dispute in Washington, the crisis prophet remained true to his pessimistic economic prospects during a Bloomberg interview.
Ongoing US debt dispute
In the United States, there is a risk of national bankruptcy because there it is parliament and not the government that decides how much money the state can borrow. Democrats and opposition Republicans have been arguing about raising the debt limit for weeks. In tough negotiations, the Republicans want to force the Democrats to make savings in the social sector. Although progress has recently been made in the talks between the Democrats of US President Joe Biden and the Republican negotiator Kevin McCarthy, a solution is still not in sight. Time is of the essence, because according to estimates by the Treasury Department, the country could reach the current debt ceiling as early as the beginning of June – the USA would then no longer be able to fully meet its payment obligations.
Such a default by the US government could lead to a global financial crisis, as the country would then be unable to pay interest on its bonds, among other things, which would send market interest rates skyrocketing and send “shock waves” through the global economy, the analysts said by Hargreaves Lansdown according to Dow Jones Newswires. The mild recession that has emerged so far would turn into a storm and shake the “financial credibility” of the US to its foundations, according to their grim forecast.
dr Doom warns of a stock crash
In view of this nail-biter, Nouriel Roubini has warned of a crash on Wall Street if the parties in Washington fail to agree in good time on raising the debt limit. The star economist sees the lack of progress in the negotiations between Republicans and Democrats as jeopardizing financial market stability: “You could wait until the last hour to come to an agreement,” said Roubini on Bloomberg TV. “Or it’s possible they won’t come to an agreement. If they don’t, then the market will collapse. That could force an agreement in a few days.”
Nouriel Roubini sees dollar dominance at risk
The emeritus professor of economics at the renowned Stern School of Business also fears that a US default could weaken the dominance of the greenback as the world reserve currency. The US currency is currently used extensively in international payments as a transaction and reserve currency. Among others, gold and crude oil are mostly traded in US dollars. This clearly shows the importance of the greenback for the global economy. In addition, due to the economic strength of the United States, the US dollar is considered a “safe haven” in times of crisis.
Roubini now sees this leadership role as endangered: “There has been a lot of talk recently about de-dollarization,” said the economist, referring to countries such as Brazil and China, which have signaled this year that they want to accelerate de-dollarization. “If the US has a real problem with its debt, a credit default, etc., then that would increase the likelihood that over time people will diversify more away from dollar assets,” the crash prophet warned.
On the other hand, a decline in the US currency has often been predicted – for example in connection with ex-President Donald Trump’s “America First” policy or the Corona crisis. And so far this has not happened.
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